According to informed sources, Christine Lagarde took the opportunity of a meeting of senior officials of the Group of Seven to question the optimism of Finance Minister Scott Bessent that the economic impact of a war with Iran would be short-lived.
According to people familiar with the matter, Bessant downplayed the damage caused by weeks of fighting in the Middle East and argued that various disruptions, including the de facto closure of the Strait of Hormuz, would be temporary. These people asked to remain anonymous because they were discussing confidential matters.
According to informed sources, the president of the European Central Bank countered that he told Biesemart and the central bank governors, finance ministers and energy ministers who participated in the G7 video conference on Monday that the impact would last for a long time as many things had already been damaged.
A spokesperson for the US Treasury Department did not respond to phone calls, text messages or emails. The European Central Bank declined to comment.
This confrontation reflects the increasingly tense relationship between the United States and Europe. Europe is more vulnerable to soaring energy prices and disrupted shipping, and these conflicts were not initiated by Europe.
The economic pain is already showing: Data released on Tuesday showed that inflation in the eurozone soared to its highest level since 2022 in March, the year when Russia invaded Ukraine. Meanwhile, governments across the 21 eurozone member states have downgraded their economic forecasts, hoping that what they had envisioned as a year of recovery will not ultimately turn into a recession.
Besant has recently tried to ease the concerns of the American public about the conflict, arguing that the oil market is well-supplied and suggesting that the strait between Iran and other Gulf countries should be reopened over time.
On the other hand, Lagarde has been sounding the alarm. The ECB’s severe scenario – based on a prolonged energy supply disruption until the end of 2026 and further significant damage to infrastructure – predicts that inflation will peak at 6.3%.
In an interview with The Economist, Lagarde said: “We are facing a real shock – perhaps more than we can currently imagine.” She pointed out that in terms of oil extraction, refining and distribution, “the losses have been too great to be recovered in a few months.”
The call on Monday was one of the global measures taken to ease the situation. Some governments have decided to release emergency oil reserves. The G7 said they are prepared to take “all necessary measures” to “maintain the stability and security of the energy market”.
They also recognized the importance of “coordinated international actions” in mitigating spillover effects and maintaining macroeconomic stability.
